S&P raises Cyprus outlook from negative to stable

Photo: EPA

Ratings agency Standard & Poor's has raised the long-term and short-term sovereign credit rating of Cyprus, previously affirmed at 'CCC' and 'C’ respectively, from negative to stable, on expectations the government will agree to the terms of financial support from international lenders, stated the agency.

Cyprus will be receiving the first tranche of aid before 4 June.

Agency analysts still expect that Cyprus will remain a member of the eurozone.

The Central Bank of Cyprus has said that the owners of uninsured deposits at the insular state’s biggest Bank of Cyprus will be unable to get 60% of their money at least until September. Cyprus is reorganizing its banking system in exchange for EU and IMF loans.

Cyprus's central bank confirmed on Monday it will extend an inquiry into the banking crisis that has crippled the island to fully cover Cyprus Popular Bank, nationalized last year because of heavy losses from Greece.

An initial 37.5 percent was taken off deposits over 100,000 euros to go towards the recapitalization of the bank, with another 22.5 percent blocked indefinitely to be used in case more money was needed.

The report is due ready by July, and a decision will be made in the next 90 days if these assets are turned into the bank’s shareholders’ capital.

Deposits above €100,000 in both banks, which are not guaranteed under EU law, will be frozen and used to resolve Laiki's debts and recapitalise Bank of Cyprus through a deposit/equity conversion.

Deposits of more than €100,000 (£85,000) at the Bank of Cyprus will lose 37.5 per cent under a bank levy being imposed across the country, but a second raid on these accounts could see depositors lose up to 22.5 per cent more to prop up the bank's reserves.

Central Bank of Cyprus Governor Panicos Demetriades told lawmakers on Monday the inquiry would move on to Popular and its Greek bond buys.

"It is expected to be completed in the next few months," he said.

Cyprus agreed a 10 billion euro bailout deal from the European Union and International Monetary Fund designed to untwine it from a banking sector that has all but crumbled in the past month.

In stark contrast to previous euro zone bailouts, depositors with more than 100,000 euros in Cyprus being forced to pay to recapitalize their banks, badly hit by their exposure to Greece.

Cash-strapped Cyprus will fall short by at least 75 million euros ($97 million) to pay its bills in April, including government salaries and pensions, an official warned on Monday.

Accountant General Rea Georgiou told parliament's finance committee that the government was trying to avoid a payment default for the month of April.

"The cash deficit for April is 160 million euros. The 85 million in reserve is not enough and we need a similar amount to avoid a default," Georgiou said, as the island awaits the first tranche of a eurozone bailout due in May.

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